1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 2 00:00:14,000 --> 00:00:17,599 Speaker 1: we bring you insight from the best in economics, finance, investment, 3 00:00:18,040 --> 00:00:23,560 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,640 --> 00:00:27,200 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. This 5 00:00:27,280 --> 00:00:30,920 Speaker 1: conversation is so important with David Constant and Golden Sacks 6 00:00:31,200 --> 00:00:32,839 Speaker 1: that we're gonna get right to it. All three of 7 00:00:32,920 --> 00:00:35,919 Speaker 1: us are really curious about his nuance. Why is that 8 00:00:36,280 --> 00:00:38,760 Speaker 1: in April he got it right? He made a call 9 00:00:38,960 --> 00:00:41,640 Speaker 1: forget about another bot on the gloom Crew torm to 10 00:00:41,680 --> 00:00:44,880 Speaker 1: shreds and Constant went long and there's been a nuance 11 00:00:44,920 --> 00:00:48,960 Speaker 1: to Golden Sachs view forward through this tumultuous two thousand 12 00:00:49,080 --> 00:00:52,159 Speaker 1: twenty David Constant, thank you so much for joining. Just 13 00:00:52,280 --> 00:00:57,880 Speaker 1: simple now what now? What well? This year has been 14 00:00:58,120 --> 00:01:02,920 Speaker 1: about the medical situation. At the core of the challenge 15 00:01:02,960 --> 00:01:05,760 Speaker 1: is medicine. And so if you think about what the 16 00:01:05,840 --> 00:01:10,640 Speaker 1: super Forecasting Project at the University of Pennsylvania is showing, 17 00:01:11,520 --> 00:01:15,759 Speaker 1: they have a estimate every day of what the likelihood 18 00:01:16,280 --> 00:01:19,679 Speaker 1: that there will be twenty five million doses of an 19 00:01:19,720 --> 00:01:25,680 Speaker 1: FDA approved vaccine somewhere in the next six months, twelve months, 20 00:01:25,720 --> 00:01:28,480 Speaker 1: eighteen months, various points in time. The reason I mentioned that, 21 00:01:28,520 --> 00:01:30,640 Speaker 1: Tom is because if you look at where we were 22 00:01:30,880 --> 00:01:37,960 Speaker 1: in July, middle of July, it was reading sixt likelihood 23 00:01:38,319 --> 00:01:42,560 Speaker 1: that there would be a vaccine widely distributed between October 24 00:01:42,560 --> 00:01:46,200 Speaker 1: of this year and April next year. Okay, that ran 25 00:01:46,319 --> 00:01:49,280 Speaker 1: up to sev by the first week of September, and 26 00:01:49,320 --> 00:01:52,680 Speaker 1: the market, the stock market went up around eleven, so 27 00:01:52,760 --> 00:01:57,320 Speaker 1: you check your numbers, that's around. However, that probability has 28 00:01:57,320 --> 00:02:00,560 Speaker 1: since turned around and it's gone from seventy down to 29 00:02:02,400 --> 00:02:05,960 Speaker 1: this morning, and that likelihood has corresponded with a decline 30 00:02:06,040 --> 00:02:08,680 Speaker 1: in the S and P five hundred by around nearly ten. 31 00:02:09,440 --> 00:02:12,720 Speaker 1: So my kind of message to you is that basically 32 00:02:12,880 --> 00:02:15,480 Speaker 1: we have been treating the likelihood of a vaccine and 33 00:02:15,520 --> 00:02:17,359 Speaker 1: you can see that in the data. And John, I 34 00:02:17,440 --> 00:02:19,480 Speaker 1: just want to mention this is Phil Tetlock at the 35 00:02:19,600 --> 00:02:23,280 Speaker 1: University of Pennsylvania with this wonderful book super Forecasting. John 36 00:02:24,400 --> 00:02:26,480 Speaker 1: and David, you were looking at the benchmark compared to 37 00:02:26,560 --> 00:02:29,359 Speaker 1: the probability of getting a vaccine. Can you got beneath 38 00:02:29,400 --> 00:02:32,040 Speaker 1: the benchmark? Because you put out some research on this recently, 39 00:02:32,080 --> 00:02:34,120 Speaker 1: and I think it's really quite interesting. Can you build 40 00:02:34,120 --> 00:02:37,720 Speaker 1: on it? Forest David? Sure. So, I'd say the fundamental 41 00:02:37,840 --> 00:02:40,519 Speaker 1: just a couple of key debates they're going on with 42 00:02:40,760 --> 00:02:43,519 Speaker 1: the with the investor community right now. One is related 43 00:02:43,520 --> 00:02:46,120 Speaker 1: into yield curve and inflation and with the rate interest 44 00:02:46,240 --> 00:02:48,959 Speaker 1: rate market will be But another one at the core 45 00:02:49,000 --> 00:02:52,880 Speaker 1: of that is about growth versus value and where should 46 00:02:53,000 --> 00:02:57,120 Speaker 1: one be. And the core argument is that the people 47 00:02:57,200 --> 00:03:00,480 Speaker 1: behind the value story would say that, gee, when there's 48 00:03:00,480 --> 00:03:04,079 Speaker 1: a vaccine that's developed, when and if that that that 49 00:03:04,160 --> 00:03:08,960 Speaker 1: takes place, that will allow the acceleration of the normalization 50 00:03:09,120 --> 00:03:12,000 Speaker 1: of economic activity, and that means the companies and the 51 00:03:12,120 --> 00:03:15,440 Speaker 1: industries and the sectors that are more cyclical will rebound 52 00:03:15,520 --> 00:03:18,520 Speaker 1: and do better. Uh, that's sort of the narrative behind 53 00:03:18,600 --> 00:03:22,079 Speaker 1: why to own cyclicals. Now I would reject that or 54 00:03:22,120 --> 00:03:25,639 Speaker 1: say that there's a better approach, that the gap in 55 00:03:25,760 --> 00:03:30,160 Speaker 1: valuation is so significant its value not necessarily cyclicals, that 56 00:03:30,320 --> 00:03:32,720 Speaker 1: is the better place to be. So that's the first observation. 57 00:03:32,800 --> 00:03:36,320 Speaker 1: You want to be in value as opposed to necessarily cyclicals. 58 00:03:36,520 --> 00:03:38,560 Speaker 1: And then the question is what's the investment arising so 59 00:03:38,880 --> 00:03:42,240 Speaker 1: tactically value maybe it maybe is attractive right now, no 60 00:03:42,400 --> 00:03:45,560 Speaker 1: question about that, one of the more attractive UH times 61 00:03:45,600 --> 00:03:48,160 Speaker 1: to see value over the last twenty years. But ultimately, 62 00:03:48,240 --> 00:03:51,000 Speaker 1: if you're looking for a longer term story, the secular 63 00:03:51,040 --> 00:03:54,800 Speaker 1: growth companies the ones that have actually generated revenue growth 64 00:03:55,040 --> 00:03:58,680 Speaker 1: and earn his growth despite the pandemic. If we look 65 00:03:58,720 --> 00:04:01,040 Speaker 1: at what happened the second quarter, third quarter looking out, 66 00:04:01,440 --> 00:04:03,680 Speaker 1: the way you want to think about this is if 67 00:04:03,720 --> 00:04:08,040 Speaker 1: you go into the entire market, how many companies are 68 00:04:08,200 --> 00:04:14,200 Speaker 1: able to consistently deliver double digit revenue growth? Well, the 69 00:04:14,240 --> 00:04:17,279 Speaker 1: answer is you start looking at who's generated revenue growth 70 00:04:17,320 --> 00:04:20,440 Speaker 1: in two thousand eighteen and two thousand nineteen. We'll skip 71 00:04:20,560 --> 00:04:22,839 Speaker 1: over this year for a minute. Expected for two thousand 72 00:04:22,920 --> 00:04:25,960 Speaker 1: twenty one, two thousand twenty two, let's get a five 73 00:04:26,080 --> 00:04:28,960 Speaker 1: year compound annual growth will pick up this year, So 74 00:04:29,040 --> 00:04:32,920 Speaker 1: that five year period, only one stocks are expected to 75 00:04:33,120 --> 00:04:35,480 Speaker 1: have been delivering and are expected to do so. So 76 00:04:35,640 --> 00:04:37,840 Speaker 1: that I think is an important argument. So I think 77 00:04:37,880 --> 00:04:40,400 Speaker 1: there's a two two prong way to approach the market 78 00:04:40,640 --> 00:04:45,200 Speaker 1: tactically value, but ultimately it's about growth and the secular 79 00:04:45,240 --> 00:04:48,040 Speaker 1: growth stories I think are likely to be the winners 80 00:04:48,120 --> 00:04:50,800 Speaker 1: for portfolio managers. If you look out twelve months from now. 81 00:04:51,880 --> 00:04:54,000 Speaker 1: It's David, two parts to the argument that you just 82 00:04:54,120 --> 00:04:55,680 Speaker 1: laid out. Let's get to the second part in just 83 00:04:55,760 --> 00:04:57,600 Speaker 1: a moment and pick out the first part. Just give 84 00:04:57,640 --> 00:05:00,839 Speaker 1: us a little one. I want the distinction between value 85 00:05:00,880 --> 00:05:04,560 Speaker 1: and cyclicals. What is that right now? So it's an 86 00:05:04,600 --> 00:05:08,520 Speaker 1: excellent question, Jonathan. It is the idea most people conflate 87 00:05:08,600 --> 00:05:11,279 Speaker 1: those two and they think about cyclical stocks that are 88 00:05:11,360 --> 00:05:14,920 Speaker 1: necessary sort of industrial UH would be would be a 89 00:05:15,000 --> 00:05:19,760 Speaker 1: classic example. UH. Financial stocks often interest rate sensitive. Our 90 00:05:19,839 --> 00:05:23,440 Speaker 1: view basically, cyclical move with the economy, and that's true. 91 00:05:23,800 --> 00:05:26,479 Speaker 1: But then when we think about that those are factually true. 92 00:05:26,520 --> 00:05:28,160 Speaker 1: We can look at a correlation. You say, well, gee, 93 00:05:28,240 --> 00:05:31,760 Speaker 1: is economic data getting better? What sectors and and and 94 00:05:32,120 --> 00:05:34,840 Speaker 1: and stocks tend to do better in that kind of environment. 95 00:05:35,040 --> 00:05:38,120 Speaker 1: Those would be defined as cyclical sort of high UH 96 00:05:38,320 --> 00:05:42,000 Speaker 1: correlation with economic activity. But value is about what is 97 00:05:42,080 --> 00:05:44,440 Speaker 1: the market trading, and so you can look at at 98 00:05:44,560 --> 00:05:48,640 Speaker 1: multiples and and pe multiples or earning zealds are different 99 00:05:48,680 --> 00:05:51,680 Speaker 1: ways of thinking about valuation, and it doesn't necessarily mean 100 00:05:51,760 --> 00:05:54,840 Speaker 1: they're economically sensitive. And so the message Jonathan's kind of 101 00:05:54,920 --> 00:05:57,719 Speaker 1: that first part is we want to find lower multiple 102 00:05:57,800 --> 00:06:03,320 Speaker 1: companies valuation, they aren't necessarily cyclical sensitivity. For example, you 103 00:06:03,320 --> 00:06:06,720 Speaker 1: look at the financials be challenging in a flat yield 104 00:06:06,760 --> 00:06:12,360 Speaker 1: curve environment to actually deliver on better growth, slim net 105 00:06:12,440 --> 00:06:17,679 Speaker 1: interest margins, big reserves because of potential UH long losses, 106 00:06:17,880 --> 00:06:21,800 Speaker 1: UH difficulty to under the c CAR proposals, whether the 107 00:06:22,279 --> 00:06:25,120 Speaker 1: financials can pay dividends or buyback stock. So those are 108 00:06:25,160 --> 00:06:28,840 Speaker 1: some of the headwinds. So those are classically cyclical areas 109 00:06:28,839 --> 00:06:31,600 Speaker 1: of the market, but it wouldn't necessarily UH screen is 110 00:06:31,600 --> 00:06:35,200 Speaker 1: attractive on evaluation basis. That's an example, David, just broadening out, 111 00:06:35,360 --> 00:06:38,160 Speaker 1: you still reasserted your call for thirty six hundred on 112 00:06:38,200 --> 00:06:40,960 Speaker 1: the SMP at year end less than two weeks ago. 113 00:06:41,560 --> 00:06:44,680 Speaker 1: If we don't get fiscal support in Washington, do you 114 00:06:44,839 --> 00:06:49,880 Speaker 1: still affirm your thirty six hundred forecasts. The answer is yes, 115 00:06:49,960 --> 00:06:53,880 Speaker 1: thirty six hundred is a target for end of the year, 116 00:06:54,080 --> 00:06:56,800 Speaker 1: thirty eight hundred middle of next year. And the argument 117 00:06:56,880 --> 00:06:59,440 Speaker 1: I said at the very beginning, ultimately this is a 118 00:07:00,080 --> 00:07:05,400 Speaker 1: medical situation, medical challenge for the economy, for society, and 119 00:07:05,560 --> 00:07:08,080 Speaker 1: ultimately for the equity markets. And I pointed out that 120 00:07:08,200 --> 00:07:10,840 Speaker 1: the level of the market at the broad level has 121 00:07:10,880 --> 00:07:15,480 Speaker 1: really been trading pretty carefully, pretty closely with the probability 122 00:07:15,840 --> 00:07:19,080 Speaker 1: of a vaccine being introduced. So part of the assumption, 123 00:07:19,560 --> 00:07:22,080 Speaker 1: uh that I'm making is that there will be a 124 00:07:22,360 --> 00:07:28,120 Speaker 1: vaccine that's identified. Probably what most portfolio managers are expecting 125 00:07:28,160 --> 00:07:31,400 Speaker 1: and what some of the forecasts are are projecting is 126 00:07:32,120 --> 00:07:35,480 Speaker 1: perhaps in October, may be approved by the FD at 127 00:07:35,480 --> 00:07:38,080 Speaker 1: the end of the year and be widely distributed in 128 00:07:38,120 --> 00:07:40,280 Speaker 1: the first six months and next year. The market, as 129 00:07:40,360 --> 00:07:42,840 Speaker 1: you know, is forward looking, and so they'll start to 130 00:07:42,960 --> 00:07:45,760 Speaker 1: discount that back. And a few weeks ago, with a 131 00:07:46,080 --> 00:07:49,280 Speaker 1: seventy likelihood that it was going to be a vaccine 132 00:07:49,280 --> 00:07:51,840 Speaker 1: available by the end of the first quarter, stock market 133 00:07:51,920 --> 00:07:54,720 Speaker 1: was close to our target, and now it's obviously pulled back. 134 00:07:54,920 --> 00:07:57,880 Speaker 1: I think that's a little less uh probable in the 135 00:07:58,200 --> 00:08:00,840 Speaker 1: in in terms of the data, So there's condrad remains it. 136 00:08:01,000 --> 00:08:04,480 Speaker 1: I don't think it's as essential from a from a 137 00:08:04,720 --> 00:08:08,040 Speaker 1: fundamental point of view, I want to see the resolution 138 00:08:08,040 --> 00:08:10,920 Speaker 1: in Washington. David John Farrell loaded the boat on Apple 139 00:08:11,000 --> 00:08:13,280 Speaker 1: and Amazon a long time ago. That's why he's in London. 140 00:08:13,320 --> 00:08:15,640 Speaker 1: He's looking at four thousand square feet and notting Hill, 141 00:08:16,000 --> 00:08:18,320 Speaker 1: which is great, but what do you do on a 142 00:08:18,480 --> 00:08:23,280 Speaker 1: relative or absolute basis if you want to rebalance out 143 00:08:23,360 --> 00:08:26,360 Speaker 1: of a tech overload? I mean, how do you approach 144 00:08:27,120 --> 00:08:30,480 Speaker 1: the institutional or retail account to high net worth account 145 00:08:30,840 --> 00:08:33,679 Speaker 1: that says, look, I've made a success of it, like Pharaoh? 146 00:08:34,480 --> 00:08:36,240 Speaker 1: What do I do? How do I move out of it? 147 00:08:36,520 --> 00:08:40,559 Speaker 1: How do you lighten up? Intelligently? So it is a 148 00:08:41,320 --> 00:08:46,439 Speaker 1: an absolute essential issue that many growth portfolio managers are 149 00:08:46,640 --> 00:08:50,640 Speaker 1: grappling with. And the issue is as follows that when 150 00:08:50,679 --> 00:08:53,839 Speaker 1: you look at the Russell one thousand Growth Index, the 151 00:08:54,000 --> 00:08:58,439 Speaker 1: top five stocks, those five stocks about twenty five of 152 00:08:58,480 --> 00:09:01,240 Speaker 1: the equity cap of the SMP five andred but the 153 00:09:01,440 --> 00:09:04,360 Speaker 1: thirty nine of the Russell one thousand Growth. So a 154 00:09:04,440 --> 00:09:08,160 Speaker 1: lot of growth managers are actually uh in passive violation, 155 00:09:08,960 --> 00:09:12,040 Speaker 1: out of compliance with the SEC guidelines. What makes it 156 00:09:12,200 --> 00:09:16,280 Speaker 1: diversified mutual fund because they have too great a concentration 157 00:09:16,360 --> 00:09:20,199 Speaker 1: in some of those positions. So the answer that that 158 00:09:20,360 --> 00:09:22,720 Speaker 1: I was sort of providing to you, and that framework 159 00:09:23,120 --> 00:09:27,440 Speaker 1: is looking at which companies can emulate from a earning 160 00:09:27,559 --> 00:09:29,520 Speaker 1: from a revenue, from a sales growth point. If you 161 00:09:29,600 --> 00:09:32,480 Speaker 1: can emulate those big stocks, that you're just mentioning some 162 00:09:32,559 --> 00:09:34,760 Speaker 1: of the big tech stocks and there's only there's not 163 00:09:34,840 --> 00:09:38,000 Speaker 1: that many. But you can think about Vertex, you can 164 00:09:38,040 --> 00:09:42,719 Speaker 1: think about PayPal, UH, you can see Intuitive Surgical. There's 165 00:09:42,760 --> 00:09:46,880 Speaker 1: a variety of companies that have delivered on ten percent 166 00:09:47,040 --> 00:09:49,559 Speaker 1: revenue growth last several years and are projected to do so. 167 00:09:50,240 --> 00:09:53,599 Speaker 1: In some cases have wide moats around their businesses. And 168 00:09:53,640 --> 00:09:56,320 Speaker 1: when I work with the analysts at Goldman, these are 169 00:09:56,400 --> 00:09:59,040 Speaker 1: some of the stocks that we screen as a strategist 170 00:09:59,160 --> 00:10:03,360 Speaker 1: and then also UH that corresponds with the fundamental analysis 171 00:10:03,400 --> 00:10:06,200 Speaker 1: of the companies. And so the answer, Tom is that's 172 00:10:06,240 --> 00:10:09,400 Speaker 1: a way of substituting for some of those large cap 173 00:10:09,440 --> 00:10:11,839 Speaker 1: growth companies. Those growth companies will still do well, but 174 00:10:11,960 --> 00:10:14,280 Speaker 1: these are companies that are maybe more middle size or 175 00:10:14,559 --> 00:10:17,200 Speaker 1: sort of in the ranking order, maybe number seventy one 176 00:10:17,320 --> 00:10:20,240 Speaker 1: or seventy three, seventy They can move up the ranking 177 00:10:20,360 --> 00:10:22,400 Speaker 1: to be one of the larger stocks and that leads 178 00:10:22,440 --> 00:10:25,199 Speaker 1: to out performance. And Tom, that's how I committed that 179 00:10:25,400 --> 00:10:28,480 Speaker 1: tackle that problem. Devid is good to hear from you, 180 00:10:28,760 --> 00:10:30,880 Speaker 1: as always, send out best of the team. David coosten 181 00:10:30,920 --> 00:10:39,680 Speaker 1: neck Alma, SAKS, Chief Equity Strategists. This is the Conversation 182 00:10:39,760 --> 00:10:42,319 Speaker 1: of the Day on fixed income. Cathy Jones is a 183 00:10:42,440 --> 00:10:46,520 Speaker 1: swab center for financial research, and what's important here is 184 00:10:46,640 --> 00:10:51,640 Speaker 1: she's got a wonderful visibility on the challenges individual investors 185 00:10:51,679 --> 00:10:54,360 Speaker 1: are having in bonds. Kathy Jones, where did the sixty 186 00:10:54,440 --> 00:10:58,840 Speaker 1: forty portfolio go? Yeah, a lot of people have tried 187 00:10:58,880 --> 00:11:02,720 Speaker 1: to abandon it and hopes of getting more income, getting 188 00:11:02,720 --> 00:11:06,000 Speaker 1: more safety, getting more diversification. But I really don't think 189 00:11:06,080 --> 00:11:08,719 Speaker 1: it's disappeared entirely. I think it just has to be 190 00:11:08,880 --> 00:11:12,480 Speaker 1: more nuanced on the fixed income side. So if you 191 00:11:12,679 --> 00:11:14,760 Speaker 1: you know, if you look at rolling correlations over the 192 00:11:14,880 --> 00:11:18,600 Speaker 1: last six months or five years, you're still getting diversification 193 00:11:18,840 --> 00:11:22,480 Speaker 1: from treasuries and you know, higher quality bonds. It's just 194 00:11:22,640 --> 00:11:25,360 Speaker 1: the upside is much more limited and the magnitude of 195 00:11:25,400 --> 00:11:28,719 Speaker 1: those changes is much smaller. What's the elasticity on the 196 00:11:28,800 --> 00:11:32,959 Speaker 1: downside if we get yield up and priced down, what 197 00:11:33,080 --> 00:11:36,599 Speaker 1: could be the magnitude of that price down? You know, 198 00:11:36,720 --> 00:11:39,480 Speaker 1: I'm looking at if I look at the tenure treasury 199 00:11:39,920 --> 00:11:42,199 Speaker 1: and we we get to move up and yield this 200 00:11:42,440 --> 00:11:44,800 Speaker 1: year or in the next year, I'd say maybe ninety 201 00:11:45,280 --> 00:11:47,840 Speaker 1: basis points to one percent. I don't think we get 202 00:11:47,960 --> 00:11:51,000 Speaker 1: much more than that on the upside. On the downside, 203 00:11:51,040 --> 00:11:53,520 Speaker 1: you might get down about forty five basis points or 204 00:11:53,600 --> 00:11:56,719 Speaker 1: so in our even less I suppose in a real 205 00:11:56,960 --> 00:12:00,560 Speaker 1: negative scenario. So it isn't the kind of move used 206 00:12:00,600 --> 00:12:03,360 Speaker 1: to see six to ten basis points a day on 207 00:12:03,480 --> 00:12:06,280 Speaker 1: a big down day. And treasuries, I mean in the 208 00:12:06,360 --> 00:12:09,520 Speaker 1: stock market. I'm you're not seeing that in treasuries now. 209 00:12:09,559 --> 00:12:13,040 Speaker 1: It's a much more limited move. In fact, yield high 210 00:12:13,160 --> 00:12:15,400 Speaker 1: in the last twenty four US by a basis point 211 00:12:15,440 --> 00:12:18,120 Speaker 1: with two three move in the equity market, Kathy, so 212 00:12:18,200 --> 00:12:21,080 Speaker 1: many people in stocks have been queuing off what's happened 213 00:12:21,120 --> 00:12:23,200 Speaker 1: with real yields? Can you just unpack that for us 214 00:12:23,240 --> 00:12:26,319 Speaker 1: a little bit what you're seeing at the moment. Yeah, 215 00:12:26,440 --> 00:12:30,199 Speaker 1: you know, the fattest holding nominal rates very steady between 216 00:12:30,280 --> 00:12:33,719 Speaker 1: their zero policy, their forward guidance that it's going to 217 00:12:33,760 --> 00:12:36,920 Speaker 1: stay there for a long time, and what we've seen 218 00:12:36,960 --> 00:12:40,800 Speaker 1: though as inflation expectations come up. So the real yield 219 00:12:40,800 --> 00:12:44,439 Speaker 1: has come down to about negative one percent on the 220 00:12:44,559 --> 00:12:48,960 Speaker 1: ten year treasury, and that gives you very limited choices 221 00:12:49,640 --> 00:12:52,800 Speaker 1: in terms of where you invest your money and the 222 00:12:52,880 --> 00:12:55,480 Speaker 1: fixed income market, But It does work for the FED 223 00:12:55,679 --> 00:12:59,000 Speaker 1: because it makes the hurdle rate for investments very low. 224 00:12:59,320 --> 00:13:02,400 Speaker 1: It encouraged as people to borrow, spend, and invest, and 225 00:13:02,559 --> 00:13:05,040 Speaker 1: that's really what the FEED is trying to get the 226 00:13:05,160 --> 00:13:08,720 Speaker 1: economy to do. The right side of the story anchored. 227 00:13:08,760 --> 00:13:11,000 Speaker 1: I'm just wondering, Kathy. I'm trying to work out where 228 00:13:11,040 --> 00:13:14,080 Speaker 1: you think inflation expectations are going to turn and whether 229 00:13:14,120 --> 00:13:16,880 Speaker 1: we could actually see really to get less negative because 230 00:13:16,880 --> 00:13:19,720 Speaker 1: inflation expectations come in given what we're seeing worldwide at 231 00:13:19,760 --> 00:13:21,840 Speaker 1: the moment. Any thoughts on that, on fact how things 232 00:13:21,880 --> 00:13:25,920 Speaker 1: are developing, Kathy, Yeah, I want My biggest fear in 233 00:13:26,000 --> 00:13:29,280 Speaker 1: the US, and now it extends to Europe because of 234 00:13:29,360 --> 00:13:33,199 Speaker 1: another round of outbreaks of the coronavirus. My biggest concern 235 00:13:33,360 --> 00:13:36,720 Speaker 1: is we don't get fiscal stimulus, the economy slows down again. 236 00:13:37,240 --> 00:13:40,040 Speaker 1: Worst case scenario is a double differ recession. It's not 237 00:13:40,120 --> 00:13:43,280 Speaker 1: our base case, but it's a worst case scenario at 238 00:13:43,360 --> 00:13:45,679 Speaker 1: particularly if we were starting would start to see a 239 00:13:45,760 --> 00:13:49,800 Speaker 1: resurgence in in virus cases here as well. So um, 240 00:13:49,880 --> 00:13:52,280 Speaker 1: I think we're walking a fine line right now. Our 241 00:13:52,320 --> 00:13:55,160 Speaker 1: base case is still for continued improvement in the economy, 242 00:13:55,280 --> 00:13:58,360 Speaker 1: but without the phiscal stimulus, and if we were to 243 00:13:58,440 --> 00:14:02,439 Speaker 1: see more virus cases, we could double dip into a 244 00:14:02,480 --> 00:14:05,240 Speaker 1: recession in the next six months or so. What's the playbook? 245 00:14:05,280 --> 00:14:07,480 Speaker 1: What's the haven in that scenario? If there isn't that 246 00:14:07,679 --> 00:14:10,319 Speaker 1: much lower the ten ure yields can go. It used 247 00:14:10,320 --> 00:14:13,040 Speaker 1: to be investment grade credit, and yet we've seen outflows 248 00:14:13,120 --> 00:14:15,000 Speaker 1: in a little bit of under performance there. What is 249 00:14:15,040 --> 00:14:17,880 Speaker 1: it now? Yeah, I still think it's treasuries. I I 250 00:14:18,640 --> 00:14:20,400 Speaker 1: You're not going to get as much as you did 251 00:14:20,520 --> 00:14:23,480 Speaker 1: in the past out of that trade, but it's still treasuries. 252 00:14:23,560 --> 00:14:26,240 Speaker 1: And keep in mind, I guess in a very negative scenario, 253 00:14:27,000 --> 00:14:29,400 Speaker 1: nominally yields can go negative at the long end. That 254 00:14:29,760 --> 00:14:32,560 Speaker 1: probably would force the Fed to take much more aggressive action. 255 00:14:32,720 --> 00:14:35,400 Speaker 1: But it's not without precedent. If you look at Europe 256 00:14:35,480 --> 00:14:38,920 Speaker 1: that's happened. What about with riskier credit, We've seen some 257 00:14:39,000 --> 00:14:42,800 Speaker 1: pretty big outflows from high bond funds of lady. Is 258 00:14:42,880 --> 00:14:45,760 Speaker 1: this the beginning of a larger trend? You know? I 259 00:14:46,160 --> 00:14:48,920 Speaker 1: think the market needs some correction in high yield has 260 00:14:48,960 --> 00:14:52,320 Speaker 1: gotten very frothy. Some of the junkiest of the junk 261 00:14:52,400 --> 00:14:55,280 Speaker 1: has rallied quite a bit. I don't think that we're 262 00:14:55,320 --> 00:14:58,240 Speaker 1: going to see investors abandon it because you do get 263 00:14:58,320 --> 00:15:00,760 Speaker 1: positive care, you're going to get a year that's you know, 264 00:15:01,080 --> 00:15:04,440 Speaker 1: five percent in high yield. That's tough to get. So 265 00:15:04,520 --> 00:15:08,000 Speaker 1: I think you'll see people come back in barring another recession. 266 00:15:08,400 --> 00:15:10,880 Speaker 1: But it did get overdone. Spreads were very tight, and 267 00:15:11,240 --> 00:15:14,600 Speaker 1: the again the lowest of the low started to do well. 268 00:15:14,960 --> 00:15:18,000 Speaker 1: You mentioned a couple of questions ago, Kathy Jones, this 269 00:15:18,320 --> 00:15:21,720 Speaker 1: idea of what the Fed wants which is completely removed 270 00:15:22,280 --> 00:15:27,440 Speaker 1: from the coupon given duration that the individual investor wants. 271 00:15:28,040 --> 00:15:30,400 Speaker 1: And we spoke with Richard Clarity yesterday. It was a 272 00:15:30,440 --> 00:15:33,720 Speaker 1: complete class act. Great but does he or the people 273 00:15:33,840 --> 00:15:39,520 Speaker 1: around him, do they actually care about financial repression. I 274 00:15:39,600 --> 00:15:42,840 Speaker 1: would say no. Um. I think they look at the 275 00:15:42,920 --> 00:15:46,480 Speaker 1: policy of the Fed as being better for the greater 276 00:15:46,600 --> 00:15:49,760 Speaker 1: good and that that's not going to change their policy. 277 00:15:49,880 --> 00:15:54,280 Speaker 1: They think that savers and investors, although we hear a 278 00:15:54,360 --> 00:15:57,320 Speaker 1: lot of complaints about low interest rates, they think savers 279 00:15:57,400 --> 00:16:00,280 Speaker 1: and investors are benefiting from the rise and risk set 280 00:16:00,480 --> 00:16:03,280 Speaker 1: and their focus is really on the point. John Farrell, 281 00:16:03,320 --> 00:16:05,800 Speaker 1: I think this is just an absolute fundamental condition. We 282 00:16:05,920 --> 00:16:08,680 Speaker 1: tried out in our fancy suits and ties and talk 283 00:16:08,760 --> 00:16:12,560 Speaker 1: all those theoretic mumbo jumbo why retirees and others are 284 00:16:12,600 --> 00:16:18,600 Speaker 1: getting absolutely crushed well over a decade, Kathy, this is 285 00:16:18,760 --> 00:16:21,680 Speaker 1: really important that these interest rates have been low for 286 00:16:21,760 --> 00:16:23,760 Speaker 1: a long long time, not just in the United States 287 00:16:23,800 --> 00:16:26,080 Speaker 1: but also in Europe, and the lower they've gone in 288 00:16:26,120 --> 00:16:30,320 Speaker 1: places like Europe and Japan, they've never gone back up again. Kathy, 289 00:16:30,400 --> 00:16:33,880 Speaker 1: do you worry about the same thing happening in America. Yeah, 290 00:16:34,600 --> 00:16:37,960 Speaker 1: one of the biggest fears we have is something like Japanification, 291 00:16:38,160 --> 00:16:41,800 Speaker 1: where we get stuck in a deflation area or a 292 00:16:42,000 --> 00:16:46,240 Speaker 1: very low inflationary environment and there's not much more monetary 293 00:16:46,360 --> 00:16:49,560 Speaker 1: policy can do. Again, it's not our base case scenario. 294 00:16:49,720 --> 00:16:52,480 Speaker 1: We think that we're actually starting to see the economy 295 00:16:52,520 --> 00:16:55,680 Speaker 1: do a little bit better. I'm relatively optimistic that get 296 00:16:55,720 --> 00:16:58,760 Speaker 1: the virus under control, that it will continue to recover. 297 00:16:59,200 --> 00:17:01,480 Speaker 1: But it is a we're case scenario, and you can't 298 00:17:01,560 --> 00:17:04,040 Speaker 1: rule it out. I mean, there's there's a probability there. 299 00:17:04,440 --> 00:17:07,399 Speaker 1: Maybe it's a low probability, maybe it's five or ten percent, 300 00:17:07,560 --> 00:17:10,919 Speaker 1: but it exists. Kathy. I can tell that I'm going 301 00:17:11,000 --> 00:17:13,200 Speaker 1: to have a long morning with Tom Keane this morning, 302 00:17:13,440 --> 00:17:14,959 Speaker 1: and you can make it a whole lot better if 303 00:17:14,960 --> 00:17:17,560 Speaker 1: you turned around and just played a little tune on 304 00:17:17,600 --> 00:17:23,200 Speaker 1: that piano. Seriously, play the microphones going to work. If 305 00:17:23,240 --> 00:17:27,760 Speaker 1: you can, just please, it would make you that she's 306 00:17:27,800 --> 00:17:29,360 Speaker 1: got I can see you over on the left John 307 00:17:29,400 --> 00:17:32,520 Speaker 1: and Bloomberg Radio, or her beautiful piano behind her, folks, 308 00:17:32,560 --> 00:17:34,560 Speaker 1: and over on the left side. You can see she's 309 00:17:34,600 --> 00:17:36,880 Speaker 1: got her one direction book. Okay. I can just see 310 00:17:37,000 --> 00:17:41,040 Speaker 1: the real turning in her head saying do this show 311 00:17:41,080 --> 00:17:43,160 Speaker 1: again a couple of minutes, Kathy, this is going to work. 312 00:17:43,200 --> 00:17:47,080 Speaker 1: The piano is right by the microphone. Next time, I'll 313 00:17:47,119 --> 00:17:51,040 Speaker 1: play Claire to Loon for Lisa. I promise, thank you 314 00:17:51,160 --> 00:17:59,080 Speaker 1: for Lisa, not for Tom. I love what that that 315 00:17:59,359 --> 00:18:02,880 Speaker 1: right there, that right that describes our relationship with every 316 00:18:02,920 --> 00:18:05,600 Speaker 1: guest that comes on this program. I'll do it for Lisa, 317 00:18:06,200 --> 00:18:08,080 Speaker 1: but not for you, guys. Kathy is going to see it. 318 00:18:10,440 --> 00:18:17,080 Speaker 1: Kathy giants, thank you. Trowan has provided real leadership in 319 00:18:17,200 --> 00:18:21,520 Speaker 1: Washington with piecing together a really smart group linking policy 320 00:18:21,760 --> 00:18:25,000 Speaker 1: into reality. Chris Krueger has provided leadership there with the 321 00:18:25,119 --> 00:18:28,360 Speaker 1: Cohen Washington Research Group, and he joins us right now Chris, 322 00:18:28,440 --> 00:18:31,159 Speaker 1: I got eight ways to go here. But there's a 323 00:18:31,240 --> 00:18:34,800 Speaker 1: point where there's a belief in salvation by Capitol Hill. 324 00:18:35,520 --> 00:18:39,560 Speaker 1: Mark your calendar. When do we see salvation from Capitol Hill? 325 00:18:41,320 --> 00:18:45,920 Speaker 1: Not this year? Um? So you know, uh, forty days 326 00:18:46,520 --> 00:18:49,720 Speaker 1: to election day when hopefully we'll know the outcome of 327 00:18:49,800 --> 00:18:54,119 Speaker 1: the election. But you know, even before the tragic passing 328 00:18:54,200 --> 00:18:58,800 Speaker 1: of Justice Ginsburg, the Phase four fiscal talks, the you 329 00:18:58,880 --> 00:19:01,800 Speaker 1: know two trillion dollar or sort of fiscal lifeline for 330 00:19:01,960 --> 00:19:06,560 Speaker 1: the economy was really hanging by a thread. And now 331 00:19:06,760 --> 00:19:10,720 Speaker 1: with the Continuing Resolution having passed the House, which will 332 00:19:10,760 --> 00:19:14,040 Speaker 1: keep the government from shutting down next week, you've really 333 00:19:14,160 --> 00:19:17,200 Speaker 1: lost your last must pass bill to to get a 334 00:19:17,280 --> 00:19:19,760 Speaker 1: fiscal package done. I say this, Chris Kruger, with great 335 00:19:19,800 --> 00:19:23,520 Speaker 1: respect for all the people working in Washington on policy. 336 00:19:24,040 --> 00:19:26,600 Speaker 1: This debate that we're going to see on Tuesday is 337 00:19:26,680 --> 00:19:28,800 Speaker 1: your world removed from it? Is it just going to 338 00:19:28,840 --> 00:19:31,680 Speaker 1: be a debate about our culture wars, about the great 339 00:19:31,760 --> 00:19:36,840 Speaker 1: differences between Mr Biden and the President. Well, so Chris 340 00:19:36,920 --> 00:19:41,600 Speaker 1: Wallace is moderating from Cleveland on Tuesday night. Um, he's 341 00:19:41,640 --> 00:19:45,200 Speaker 1: announced six of the topics, and you know, one of 342 00:19:45,240 --> 00:19:47,920 Speaker 1: the you know two of the topics involved the Supreme Court. 343 00:19:48,160 --> 00:19:51,520 Speaker 1: And you know whether or not the candidates are going 344 00:19:51,600 --> 00:19:55,320 Speaker 1: to agree to h the election results. So you know, 345 00:19:55,400 --> 00:19:57,680 Speaker 1: at least a third of the debate is going to 346 00:19:57,840 --> 00:20:04,080 Speaker 1: be deeply controversial for nearly four years. Chris, the abnormal 347 00:20:04,280 --> 00:20:08,520 Speaker 1: has become normal. Yesterday President Trump refusing to confirm a 348 00:20:08,640 --> 00:20:12,840 Speaker 1: peaceful transceller of power. Should Joe Biden win the ballots? 349 00:20:13,359 --> 00:20:16,480 Speaker 1: What kind of abnormal should we be girding ourselves for 350 00:20:16,840 --> 00:20:21,159 Speaker 1: from November to December. I would even say November to 351 00:20:21,359 --> 00:20:26,560 Speaker 1: to January twentieth, when the Constitution would end the the 352 00:20:26,800 --> 00:20:31,920 Speaker 1: term of president and vice president. Um, so a few things, 353 00:20:32,200 --> 00:20:34,520 Speaker 1: you know, I'm not I don't think people should be 354 00:20:34,640 --> 00:20:37,680 Speaker 1: terribly surprised about this. I mean, recall in ts Sten 355 00:20:37,720 --> 00:20:41,680 Speaker 1: when when when Trump won the won the presidency in 356 00:20:41,720 --> 00:20:45,000 Speaker 1: the electoral College, losing the popular vote. He then established 357 00:20:45,040 --> 00:20:50,359 Speaker 1: a commission on voter fraud. Combine that with his views 358 00:20:50,480 --> 00:20:53,280 Speaker 1: on mail in ballots over the past six months, and 359 00:20:53,400 --> 00:20:58,480 Speaker 1: this is a pretty um, you know, obvious outcome to 360 00:20:58,640 --> 00:21:00,680 Speaker 1: to where we are. When you look at some of 361 00:21:00,760 --> 00:21:04,840 Speaker 1: the hard and fast dates as laid out by the Constitution, 362 00:21:04,960 --> 00:21:08,679 Speaker 1: the first one is December eight. That's when the states 363 00:21:08,800 --> 00:21:12,440 Speaker 1: must make their final decision on any controversies around the 364 00:21:12,520 --> 00:21:16,000 Speaker 1: appointments of their electors. So there are really no sort 365 00:21:16,040 --> 00:21:20,480 Speaker 1: of hard catalyst between November three and December eight. Um. 366 00:21:20,760 --> 00:21:23,400 Speaker 1: You know, hopefully we'll know the outcome of the election 367 00:21:23,480 --> 00:21:25,760 Speaker 1: on election night, but with the amount of mail in 368 00:21:25,920 --> 00:21:30,359 Speaker 1: ballots that um we we you know, it may not 369 00:21:30,520 --> 00:21:34,280 Speaker 1: be election night. It could be election month. Chris, let's 370 00:21:34,280 --> 00:21:36,800 Speaker 1: talk about that what this could mean for financial markets. 371 00:21:37,080 --> 00:21:39,760 Speaker 1: That's something the market is pricing. It's price for you 372 00:21:39,840 --> 00:21:42,200 Speaker 1: see that in the volatility curve. We talk about that 373 00:21:42,280 --> 00:21:44,680 Speaker 1: often on this program. Chris, I just wander, as you 374 00:21:44,720 --> 00:21:46,680 Speaker 1: look at the polls right now, does it scream tight 375 00:21:46,840 --> 00:21:50,800 Speaker 1: rice to you from what you look at? I think 376 00:21:50,920 --> 00:21:53,960 Speaker 1: what is the real key? The real key here is 377 00:21:54,040 --> 00:21:57,320 Speaker 1: going to be the margin of the Senate because for 378 00:21:57,640 --> 00:22:02,399 Speaker 1: for investors, for markets, you know, a a fifty fifty 379 00:22:02,560 --> 00:22:06,440 Speaker 1: Senate is very different than a you know, a fifty 380 00:22:06,520 --> 00:22:11,040 Speaker 1: five fifty five Democrats in the Senate or even a 381 00:22:11,119 --> 00:22:14,960 Speaker 1: Republican Senate. So I think looking at the Senate margin 382 00:22:15,320 --> 00:22:18,080 Speaker 1: is really going to be critical. And would would point 383 00:22:18,119 --> 00:22:20,800 Speaker 1: out to that a number of the Senate races Uh, 384 00:22:20,920 --> 00:22:24,760 Speaker 1: could come down to recounts, and you have too likely 385 00:22:24,920 --> 00:22:29,920 Speaker 1: runoffs in Georgia which won't happen until January uh fourth 386 00:22:30,040 --> 00:22:33,560 Speaker 1: or fifth. You know. Reminder that the Florida recount in 387 00:22:33,600 --> 00:22:37,600 Speaker 1: two thousand took thirty six or thirty one days, thirty 388 00:22:37,640 --> 00:22:40,600 Speaker 1: two days, something like that. And the Minnesota Senate race 389 00:22:40,680 --> 00:22:43,960 Speaker 1: in in two thousand eight, which was the crucial sixtie 390 00:22:44,080 --> 00:22:48,600 Speaker 1: seat for Democrats, took over six months. So um, you know, 391 00:22:48,680 --> 00:22:51,719 Speaker 1: it's not just the presidential race. I think senate recounts, 392 00:22:52,280 --> 00:22:54,560 Speaker 1: uh in Senate runoffs or something to to keep in 393 00:22:54,640 --> 00:22:57,440 Speaker 1: mind as well, Christ to building what John is talking about, 394 00:22:57,480 --> 00:22:59,159 Speaker 1: a lot of people taking a look at the polls 395 00:22:59,440 --> 00:23:02,639 Speaker 1: saying to very close race even though former Vice President 396 00:23:02,720 --> 00:23:05,680 Speaker 1: Joe Biden has come out ahead. Are you taking any 397 00:23:05,760 --> 00:23:08,960 Speaker 1: messages from the polls that perhaps is different than what 398 00:23:09,200 --> 00:23:14,240 Speaker 1: is commonly believed. Well, you have the national polls and 399 00:23:14,320 --> 00:23:17,680 Speaker 1: you have the battleground state polls. Um. Despite all that 400 00:23:17,760 --> 00:23:22,119 Speaker 1: has happened over the past six months, the pandemic, the recession, 401 00:23:23,000 --> 00:23:29,119 Speaker 1: social protests, etcetera. The presidential race within the national polls 402 00:23:29,240 --> 00:23:33,399 Speaker 1: is somewhat remarkable in that it doesn't really move that much. Um, 403 00:23:33,720 --> 00:23:38,680 Speaker 1: some of the battleground states, we have seen some tightening. Um, 404 00:23:39,200 --> 00:23:42,280 Speaker 1: but you know, you you, I mean with the storyline 405 00:23:42,359 --> 00:23:45,280 Speaker 1: thus far has been that Joe Biden has had a 406 00:23:45,440 --> 00:23:49,360 Speaker 1: pretty durable, consistent lead. You know, the big question will 407 00:23:49,359 --> 00:23:54,560 Speaker 1: be are the polls correct. The national polls in we're 408 00:23:54,640 --> 00:23:56,840 Speaker 1: pretty good. I mean Hillary, you know, I think it 409 00:23:56,960 --> 00:24:01,040 Speaker 1: was about a three basis point um advantage for Hillary. 410 00:24:01,320 --> 00:24:03,960 Speaker 1: She won by you know, call it two and a half. 411 00:24:04,200 --> 00:24:06,760 Speaker 1: So you know, some of those state poles are really 412 00:24:06,800 --> 00:24:09,240 Speaker 1: going to be key, and that's why you're seeing, you know, 413 00:24:09,359 --> 00:24:13,480 Speaker 1: the overwhelming focus on states like Florida, North Carolina, Arizona, 414 00:24:13,640 --> 00:24:18,800 Speaker 1: and obviously the three Rust Belt states. Chris, right, Thanks 415 00:24:18,840 --> 00:24:20,399 Speaker 1: coming on the show this morning, Chris Crook at that 416 00:24:20,520 --> 00:24:28,359 Speaker 1: colon Washington and Recess Group policy analysts. Right now, Ethan 417 00:24:28,400 --> 00:24:30,640 Speaker 1: Harris joins us to say how the Bank of American 418 00:24:30,680 --> 00:24:34,640 Speaker 1: Economics barely describes his contribution over the years. Not only 419 00:24:34,760 --> 00:24:38,560 Speaker 1: is informed book on Ben Bernanke, but also bringing concision 420 00:24:39,040 --> 00:24:41,880 Speaker 1: to the study out of Clark University in Columbia. Dr 421 00:24:41,960 --> 00:24:44,840 Speaker 1: Harris thrilled to have you with us at today. There's 422 00:24:44,840 --> 00:24:47,840 Speaker 1: a lot of moving parts here, Ethan. Michelle Meyer's aged 423 00:24:48,000 --> 00:24:51,560 Speaker 1: over this, uh studying this labor economy. What is the 424 00:24:51,640 --> 00:24:55,959 Speaker 1: moving part that matters? To Ethan Harris, Well, I think 425 00:24:56,000 --> 00:24:58,159 Speaker 1: you guys just talked about it. I mean that the 426 00:24:58,280 --> 00:25:01,800 Speaker 1: problem right now is that the lagged effects on the 427 00:25:01,840 --> 00:25:04,840 Speaker 1: economy are still playing out. I mean, recessions always start 428 00:25:04,920 --> 00:25:08,040 Speaker 1: with some kind of shock, and then as the pain 429 00:25:08,200 --> 00:25:10,920 Speaker 1: kind of builds, you get these second round effects. And 430 00:25:11,000 --> 00:25:13,840 Speaker 1: so having jobless claims, even if they're mismeasured at this 431 00:25:14,080 --> 00:25:17,680 Speaker 1: level UM is quite disturbing. And it's it's a it's 432 00:25:17,720 --> 00:25:21,959 Speaker 1: an indicator of the pain that's still out there UM. 433 00:25:22,080 --> 00:25:24,400 Speaker 1: And it's consistent with the idea that you know, we're 434 00:25:24,520 --> 00:25:27,560 Speaker 1: getting past the phase where uh, you know, we're kind 435 00:25:27,600 --> 00:25:30,480 Speaker 1: of rebounding from that shutdown and now more into the 436 00:25:30,600 --> 00:25:36,239 Speaker 1: grinding uh forward phase with this massive head wind from 437 00:25:36,320 --> 00:25:38,760 Speaker 1: the labor market. So we don't have to torture the data. 438 00:25:38,840 --> 00:25:43,680 Speaker 1: The data is torturing us. Well, put Ethan Harris, I 439 00:25:43,760 --> 00:25:45,680 Speaker 1: think a lot of people would agree with that as well. Ethan. 440 00:25:45,720 --> 00:25:46,959 Speaker 1: Forgive me just for a moment, I want to talk 441 00:25:46,960 --> 00:25:49,240 Speaker 1: about the equity market briefly. Tom A little bit of 442 00:25:49,240 --> 00:25:51,560 Speaker 1: a slip pair on the SMP five and eight tenths 443 00:25:51,560 --> 00:25:53,480 Speaker 1: of one percent now and that's that one hundre of 444 00:25:53,520 --> 00:25:56,040 Speaker 1: breaking down by about one point to eight percent, and 445 00:25:56,119 --> 00:25:58,280 Speaker 1: still the under performance intact. You talked about a bit 446 00:25:58,320 --> 00:26:00,560 Speaker 1: into the bond market. I agree with its subtle, but 447 00:26:00,600 --> 00:26:02,560 Speaker 1: it's there on a tenure treasury. This is where things 448 00:26:02,600 --> 00:26:04,359 Speaker 1: stand right now. You have to come in just a 449 00:26:04,440 --> 00:26:07,040 Speaker 1: single basis point. We're down two basis points on a 450 00:26:07,240 --> 00:26:09,359 Speaker 1: thirty year so just a bit of a breakdown in 451 00:26:09,400 --> 00:26:11,760 Speaker 1: this market. And Ethan, a couple of reasons for this 452 00:26:11,920 --> 00:26:15,120 Speaker 1: breakdown in this market, and it all started over the weekend. 453 00:26:15,480 --> 00:26:18,000 Speaker 1: The idea that because of the division down in Washington, 454 00:26:18,320 --> 00:26:20,879 Speaker 1: we don't get a fiscal agreement in Europe. The idea, 455 00:26:20,920 --> 00:26:23,480 Speaker 1: because of more restrictions on the economies like the UK, 456 00:26:23,880 --> 00:26:26,919 Speaker 1: France and elsewhere, that we have a more pronounced slowdown 457 00:26:27,200 --> 00:26:29,720 Speaker 1: in Europe, maybe even and let's hope this isn't the case, 458 00:26:30,000 --> 00:26:32,600 Speaker 1: a double dip recession. Ethan, how do you view things 459 00:26:32,720 --> 00:26:34,680 Speaker 1: right now with those two issues front and center for 460 00:26:34,760 --> 00:26:37,520 Speaker 1: this market? Right so? I think when you look at 461 00:26:37,560 --> 00:26:40,119 Speaker 1: the equity market, you need to think about two different 462 00:26:40,280 --> 00:26:42,760 Speaker 1: stories here. One is there's a bit of a re 463 00:26:43,000 --> 00:26:46,359 Speaker 1: rating in the market as the as investors realize that 464 00:26:46,440 --> 00:26:49,919 Speaker 1: we're in a low interest rate environment forever going forward, 465 00:26:50,119 --> 00:26:52,840 Speaker 1: and so the return and risk acid should be higher 466 00:26:53,000 --> 00:26:56,240 Speaker 1: in a permanently low rate environment. So the recovery in 467 00:26:56,280 --> 00:26:59,240 Speaker 1: the equity market I think reflects that. It reflects the 468 00:26:59,280 --> 00:27:01,960 Speaker 1: fiscal statement. This reflects the FED and this kind of 469 00:27:02,080 --> 00:27:05,720 Speaker 1: low rate environment. But now we're entering a period of 470 00:27:05,960 --> 00:27:11,360 Speaker 1: tremendous uncertainty. Um. We the fiscal stimulus is steadily fading. 471 00:27:11,440 --> 00:27:14,880 Speaker 1: It peaked in the second quarter, and every quarter going 472 00:27:15,040 --> 00:27:19,040 Speaker 1: forward the money continues to run out. Um And I've 473 00:27:19,040 --> 00:27:21,359 Speaker 1: actually been surprised you haven't slowed down more than this 474 00:27:21,520 --> 00:27:26,159 Speaker 1: by now. The fiscal package is basically dead now with 475 00:27:26,280 --> 00:27:29,480 Speaker 1: this battle over the Supreme Court um, and even after 476 00:27:29,560 --> 00:27:32,640 Speaker 1: the election, we may not get a package. So we're 477 00:27:32,720 --> 00:27:37,240 Speaker 1: kind of removing the patient from the intensive care unit 478 00:27:37,400 --> 00:27:40,200 Speaker 1: too early here. And then you layer on top of 479 00:27:40,280 --> 00:27:42,720 Speaker 1: that the fact that there's this kind of trade war 480 00:27:42,840 --> 00:27:47,960 Speaker 1: stuff growing. You have a likely re escalation of COVID 481 00:27:48,080 --> 00:27:51,480 Speaker 1: cases in the fall as people move indoors, and then 482 00:27:51,520 --> 00:27:54,280 Speaker 1: you've got things like Brexit in the UK. So it's 483 00:27:54,800 --> 00:27:58,280 Speaker 1: I think the market's simply got too many uncertainties on 484 00:27:58,359 --> 00:28:00,960 Speaker 1: its plate and um, and it's going to be under 485 00:28:01,000 --> 00:28:04,200 Speaker 1: pressure for a while here. Well, given the uncertainties, ethan, 486 00:28:04,440 --> 00:28:07,440 Speaker 1: what are the indicators you're watching to indicate a true 487 00:28:07,520 --> 00:28:13,560 Speaker 1: slowdown that could potentially create the backdrop for a double deprocession. Well, 488 00:28:13,640 --> 00:28:15,680 Speaker 1: I think that one of the challenges right now is 489 00:28:15,720 --> 00:28:18,040 Speaker 1: that we're all kind of we've got a cottage industry 490 00:28:18,119 --> 00:28:20,920 Speaker 1: of daily indicators we're all using, including the B of 491 00:28:21,040 --> 00:28:24,640 Speaker 1: a card data, the home base and all that other, 492 00:28:24,960 --> 00:28:27,840 Speaker 1: all the other stuff. Um, none of these indicators have 493 00:28:27,960 --> 00:28:32,160 Speaker 1: really been stress tested through a period to see how 494 00:28:32,320 --> 00:28:36,040 Speaker 1: accurate they are. They're they're useful, they're certainly I think 495 00:28:36,040 --> 00:28:39,840 Speaker 1: they're all this data is very useful. But the data 496 00:28:39,880 --> 00:28:43,880 Speaker 1: we're a bit misleading. In the summer, the daily indicators 497 00:28:43,920 --> 00:28:47,400 Speaker 1: were weaker than the official statistics. I think we need 498 00:28:47,600 --> 00:28:52,520 Speaker 1: confirmation from the official data. We need to see hints 499 00:28:52,640 --> 00:28:57,320 Speaker 1: that the slowdown in retail sales is accumulating into something 500 00:28:57,440 --> 00:29:01,000 Speaker 1: much weaker. Uh need to see an from the job's 501 00:29:01,040 --> 00:29:04,840 Speaker 1: report and so on. So uh, while these timely data 502 00:29:04,920 --> 00:29:07,480 Speaker 1: are you know, we all look at very closely. Um, 503 00:29:08,000 --> 00:29:10,560 Speaker 1: we need to need to get some confirmation from from 504 00:29:10,600 --> 00:29:13,200 Speaker 1: the hard data and Future deteria negative twenty nine. We're 505 00:29:13,200 --> 00:29:15,520 Speaker 1: out of stick big almost two points on the VICS 506 00:29:15,600 --> 00:29:19,120 Speaker 1: thirty point four seven. Right now, Ethan, one final questionnaire, 507 00:29:19,120 --> 00:29:21,560 Speaker 1: We've got to get back to the markets. Dr Harris. 508 00:29:21,880 --> 00:29:25,080 Speaker 1: This morning, the Chancel of the Exchequer talks about a 509 00:29:25,280 --> 00:29:29,080 Speaker 1: United Kingdom permanent adjustment. Do you and your team just 510 00:29:29,200 --> 00:29:35,440 Speaker 1: assume there will be an American permanent adjustment? Um? Well, 511 00:29:35,920 --> 00:29:40,000 Speaker 1: I mean we there's a structural damage to these economies. Um. 512 00:29:40,360 --> 00:29:43,600 Speaker 1: I don't think it's I think we can recover largely 513 00:29:43,680 --> 00:29:46,840 Speaker 1: back to where we started from. But you know, there's 514 00:29:47,000 --> 00:29:49,680 Speaker 1: fundamental changes going on. There's been some good things. I mean, 515 00:29:49,720 --> 00:29:52,959 Speaker 1: we've learned that we can do things more cost effectively, 516 00:29:53,120 --> 00:29:57,280 Speaker 1: for example me working from home. Uh. But there's also 517 00:29:57,440 --> 00:29:59,560 Speaker 1: a lot of damage out there. So yeah, there's a 518 00:29:59,560 --> 00:30:05,440 Speaker 1: structure role component to this whole crisis. Ethan. Good to say, 519 00:30:05,480 --> 00:30:07,840 Speaker 1: you look wow. Send out best to the same. Ethan Harris, 520 00:30:07,920 --> 00:30:11,200 Speaker 1: that Bank of American's Securities head of Global Economic Race such. 521 00:30:11,680 --> 00:30:15,760 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 522 00:30:15,920 --> 00:30:21,200 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 523 00:30:21,320 --> 00:30:25,520 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane. Before 524 00:30:25,560 --> 00:30:29,760 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio.